In a post-digital world, commerce always has both a physical and a digital component, unless we’re talking about pure digital products or experiences (or maybe pure physical stuff sold in person and paid cash). Commerce is inherently hybrid. There is a physical item that needs to move around, raising questions of logistics. You might need a physical store, service shop or showroom. And then there is digital data that needs to move around as well, raising questions of software, interface, and experience. Everything is highly interconnected and networked.
Aside from a few, small niches, there’s no such thing as a pure physical retailer. Digital is just the way it is, and the way it’s going to be. But it isn’t purely digital either. Amazon and Apple both have physical stores, and the same is true for smaller players like Zalando. Soon, most retailers will be hybrid, and the same applies to brands, marketing, and media. We’re in the midst of a great reshuffling, just like the early internet pundits predicted in the nineties. In the digital sphere, everyone is competing with everyone else. And in the physical sphere, we see the same phenomenon emerging.
Everyone goes everywhere
The network effects of the internet, its platforms and aggregators, are compelling everyone to go everywhere, through lower transaction costs:
- Retailers are sourcing their own products, thus competing with brands – their own suppliers.
- Brands, in turn, are selling directly to consumers (DTC), thus competing with retailers – their own sales channels.
- Both are opening physical and digital stores, to defend or expand their market share.
- These stores are becoming marketing tools, rather than sales channels. It’s about presence, consumer touchpoints and relationships. And about content.
- Whoever has the physical or digital traffic can and must sell it (unless they’re Apple). So everyone is becoming a media company as well.
- It’s no longer about mere traffic, but the consumer relationship: first-party data, and the login.
- Media companies need to sell more and other products to stay afloat, thus competing with brands and retailers.
- And if that wasn’t already enough, the lines between B2C and B2B are blurring as well (and that’s without considering B2B2C and its siblings).
It’s a funny world that is hard to understand, because of its volatility, uncertainty, complexity, and ambiguity (VUCA). It’s a world driven by software, data, and networks. The most important part is, as always, to have a decent business model. It’s not enough to simply use the list above as action items and add everything from that list to your business. Quite the contrary.
We’ve flipped the switch
Over the last year and a half, we’ve flipped the switch between physical and digital retail: physical retail is no longer essential – we can live without shopping in city centres, malls, or even supermarkets. But we can’t live without delivery, and this will change the future face of our cities. Physical commerce is now subject to the same experience-driven revolution that swept through electronic commerce over two and a half decades. We will continue going to physical stores if the experience is superior (or when there are no other options). Mediocrity won’t suffice.
The division of labour between brands and retailers is crumbling because both fight for the direct consumer relationship (i.e., first-party data). The central battlefield is the consumer experience. In most industries, a superior experience requires a hybrid – physical and digital – commerce setup. But in this mix, physical stores change their role from being part of logistics to becoming part of the overall brand and service experience. This requires totally different store designs and tight integration of the digital experience.
Retailers have been in the business of selling shelf and shop floor space to brands for decades. Now, they are also in the business of selling digital media space. Retailers need to pay for traffic in both worlds. In the physical realm, it’s about renting real estate in attractive locations and about using classical advertising. In the digital realm, retailers are becoming both sellers and buyers of media inventory. They are buying traffic, refining it (by creating consumer relationships and first-party data) and selling it to brands.
A lot more competition
This results in a lot more competition for incumbent media houses. In the long shadow of the giants (Google, Facebook, and Amazon), smaller players who have managed to grab some eyeballs are emerging as sellers of media inventory. A breed of these is employing a decent content strategy to attract and retain their audience, thus creating another field of competition with media houses. The resulting erosion of media revenue is forcing publishing companies to enter new markets, generating even more competition.
Ben Evans explains the hybrid world of commerce as follows:
“Mattresses, books and sushi can all be bought ‘online’, but those are as different from each other as Walgreens and Ikea. They’re all algebra – all different points in that scatter diagram – and a binary split between ‘online’ and ‘physical’ retail is less and less useful.
Part of that algebra is that all sorts of things that were previously separate budgets become part of the same question. Should you spend your acquisition budget on search ads or free shipping? Or a better returns policy? If you open a store in that city, can you spend less on Instagram, and do your returns go down or up? How do you reach your customers, and who are they? There’s long been a joke in D2C that ‘rent is the new customer acquisition cost’, but what is an Amazon truck?”
Commerce is inherently hybrid
It’s complicated, to say the least. The low-hanging fruit of electronic commerce has long since been harvested by Amazon and other retailers applying their model of detail-page shop experience and cardboard box logistics. Now, it’s about new shopping experiences and other types of logistics, like groceries or meal delivery. Commerce is inherently hybrid, not only between physical and digital but also between experience and logistics.
Retail is sitting on a spectrum from logistics to experience, as Ben Evans puts it. Questions of logistics and experience are more interesting these days than questions of physical or digital.